Fleecing Oklahoma Taxpayers, using tax credit thievery

Oklahoma is being victimized by an unknown number of frauds and corruption, artfully scattered among various popular state programs. These programs are well conceived and disguised making it very difficult to get the public's attention as to how much the state being scammed.

Here you will see how Oklahoma's elected officials and political appointees have conspired to setup and operate one very lucrative tax credit fraud.

While the state hovers near poverty¹ and its economy rapidly approaching the worst economy² in the 50 states, Oklahoma officials have been parading out press announcements proclaiming success in economic development and creating new jobs. -

(1) Oklahoma's Poverty Rate Continues To Climb (2) Oklahoma's economy, a failing failure.

In reality these programs are a tax fraud scheme to help wealthy officials, political cronies and donors avoid paying state income tax, and some reaping huge profits by falsely claiming and selling excessive tax credits.

What started out as a way to provide out tax credits to offset state income tax, has evolved into a much bigger fraud where the greedy and unscrupulous are grossly exaggerating their tax credit claims, and reselling the excess tax credits for huge profits. Being a party to the initial scheme trapped state officials and lawmakers into not being able to stop the larger fraud without exposing themselves and forcing many including themselves to start paying state income tax again. Something that would be very costly to wealthy political cronies and donors.

What jobs are created often cost $100s thousands (in one case $700,000)³ per job and last only a short time. -

(3) Altus Ventures Quartz Mountain Aerospace project

In simple terms this is nothing more than a state government enabled tax sham buried in the legal mumbo-jumbo of the states economic development program, the "Capital Formation Incentive Act", a license to fraud. Several well known public figures are among those using the tax credits to avoid paying state income tax. It is very probable that many state officials are using these tax credits themselves.

State officials including the Governor and Attorney General are riding the political fence. When confronted about the tax credit abuse, they claim this is bad, but they can do nothing because there is "nothing illegal" in how the scam operates.

The same officials who for their entire career apparently held the same opinion that there was "nothing illegal" in the things Gene Stipe and his type were doing either. Or, was that a similar situation where they hid behind the notion that they could see nothing illegal with Gene Stipe, but failed to act?

Tax credit scam fraud. -

In this section we will focus on one of the most lucrative frauds and you will see why this is the corrupt element's fraud of choice. This fraud was cleverly written into the "Capital Formation Incentive Act" and enacted in to law, giving state officials the excuse - there is "nothing illegal" - for doing nothing, avoid disclosing how much is being lost and protect the identities of those involved.

How much has tax credit fraud has already cost Oklahoma? -

At least $850 million. Likely more but state officials refuse to release information on the usage of the "Capital Formation Incentive Act."

See what Oklahoman's have to forfeit to cover the $850 million. View

Background

Blessed with an abundance of oil and natural gas from statehood Oklahoma was able to exist for most of its first 100 years without a fiscally responsible or forward thinking government. -

From the beginning the environment was both ripe and inviting allowing the greedy and unscrupulous to control the state's government. Cronyism immediately took control of the states political power base. As a result Oklahoma has never had an intelligent effective or responsible government or economic development strategy.

Self serving political structures (governments) are, by nature, self perpetuating. Using the constitution and powers of the various state offices for self-preservation. That political structure still exists and as you will see demonstrated here. The current elected officials, even if so inclined, are intimidated by the fear bucking this system would be the end of their political career.

The corrupt element has its fingers in virtually every program in the state, but seem to have found economic development to be a particularly lucrative venue.

For the record, there doesn't appear to be one centralized point of corruption, rather several loosely related pockets, within both parties, that find it beneficial to protect each other.

Planting the seeds of fraud. -

With the state in the economic pits (refer to Overview), state officials were convinced by their cronies to get behind an economic development program. Not the normal economic development program, but a program written by and for the cronies. Then delivered to our State Lawmakers and Governor to rubber stamp enacting into law something called the "Capital Formation Incentive Act," license to fraud.

An act we now know is a wolf in sheep's clothing! An act written to defraud the public to enrich a few!

The mechanism for tax credit abuse fraud was implanted in the predecessor of what is now the "Capital Formation Incentive Act." License to fraud

Now we learn Oklahoma is governed by "Ghosts and Spirits"!

Sen. Ted Fisher, D-Sapulpa, while Chairman of the Senate Economic Development Committee authored the original "Capital Formation Incentive Act." Later, when ask how this legislation was written to allow this fraud, Fisher said "some unknown person 'tweaked' the law, and he failed to notice." [Ref A103]

One single person, a lobbyist, Lawmaker or staff on the take can create their own laws. Simply walk in and change legislation?

Were our Lawmakers powerless to do anything about this?

Equally telling is:

Our state legislative branch is so crooked or incompetent this can actually happen?
Our state legislative branch is so crooked or incompetent they never catch it?
All state officials are so crooked or incompetent they allow this to go unabated for a decade?
Enough lawmakers voted on the bill for the bill to pass.
The so called "honest Lawmakers with integrity" simply turn a blind eye.
The Governor signed the bill into law.
The abuse has been well documented, with many articles written on the subject. View
The abuse continues!
Current state officials including this Governor claim there is nothing illegal in this fraud.
* In 2006 Lawmakers and the Governor claimed to have "fixed the law" by amending to prevent further fraud.
The fraud continues.
State officials continue turning a blind eye!

Fraud by flawed legislative design. The near perfect crime. -

The "Capital Formation Incentive Act" blows off investments from outside the state by restricting participation to:

Crony Oklahoma based "Venture Capital Companies"
Investors subject to Oklahoma income tax.

"Venture Capital Companies" qualified to participate were authorized unrestricted access to unlimited tax credits, while requiring no accountability.

The act was void of:

any restrictions as to what the Venture Capital Companies are free to do.
limitations.
guidance.
benchmarks.
accountability.
transparency.
requirements to perform due diligence.

No assigned responsibility to any state officials to monitor and manage the program. The some administrative processing responsibilities is assigned to the Oklahoma Tax Commission, because that is where the tax credits will eventually be applied, but no responsibility or accountability.

Specifically restricted punishment, to simply not being allowed o participate any future programs.

Yet the act has lengthy and detailed specifications of criminal violation and punishment for any who disclose the identities of any person or businesses benefiting from the tax credits or how much money is taken from the state.

Note: State lawmakers provided as much protection as they possibly could, but they could not protect some participating in the tax credits from certain federal reporting requirements.

More details on the Capital Formation Incentive Act including a link to the complete bill.

Big Thunder, No Rain. -

An outcry was heard when the tax abuse scam finally reached the public. In 2006 Lawmakers and the Governor claimed they viewed this as a great wrong. Yet they dodged taking any action to investigate and/or recover the state's losses. All the while, for political purposes they made a big deal out of how they were going to fix the law and stop further abuse.

Our Governor and Lawmakers really fixed that loophole. Within the first 4 months after the "law was (supposedly) fixed"

The "supposed fix" turned out to be a cover for making the loophole even more fraud friendly!

Between the time the law to supposedly outlaw the tax abuse loophole, took effect in June 2006 and November 2006, another $330 million was scammed from the same, but improved loophole.

We have yet to learn what has happened since November 2007, with officials refusing to release any information to the public.

The Owl's take -

Oklahoma's less fortunate are victims of the politicians favorite constituency. The gullible and those who don't care about others as long as their wants are met. This includes most of the media, who are intimidated by the fact reporting negative news will hurt their image. Those who hide behind the pretense of trust in our leaders and blind loyalty. Preferring to live in denial, believing they are entitled to not worry with the unpleasantness of negatives. All they are interested in is reason to turn their backs of wrong. Official claims are all they need to soothe their guilt's.

Just tell us what we want to hear. That makes some folks feel like they have won! Cheat us all you want, then tell us you won't do it again. We still believe you! Wow? And, some wonder why someone doesn't do anything about this? The answer is simply -- no one cares enough to hold our officials accountable!

Right and wrong to politicians is merely what the public will allow or not allow. If the public doesn't care how much is stolen, then is must be ok!

Note: This area of the Website will focuses on "Tax Credit Abuse" made possible by the "Capital Formation Incentive Act," a license to fraud. Only one aspect of a larger family of corruption, which we will progressively expose. Some other areas of corruption are -

Some current (known) areas of corruption in Oklahoma government.

Special Projects or Earmarks.
Oklahoma Capital Investment Board - OCIB.
REAP The CDBG/Rural Economic Action Plan.
MetaFund.
Quality Jobs Program, administered by the Oklahoma's Department of Commerce.

Note: These range from outright fraudulent criminal activities, to waste when by cronyism repays favors and of funds incompetent entities setup solely for the purpose of a free ride.

Keep in mind that any good fraud is not going to be so simple that it is immediately obvious.

How the tax credit abuse scam works. The anatomy of a government sanctioned fraud!

To make this more understandable let's "cut to the chase" and use one of the actual frauds to illustrate the workings of the scam.

	Real people!		Real crooks!
		Real Money!		Our money!

The "Oklahoma Chicken Farm," read first, will help in understanding the following.

A small Oklahoma Capital Venture Company, Altus Ventures, using the fraud loophole provided in the "Capital Formation Incentive Act" devised a scam, known as Altus V, that would allow Altus Ventures to guarantee every investor, including themselves and most likely some state officials, a no risk return of $2 for every $1. -

Participation in this tax credit scam by some state officials is a logic conclusion considering state officials refusal to act to protect the public interest while taking extraordinary measures to protect the identity of those participating.

It should be reminded that the perception of wrong doing, far less than proof without a reasonable doubt, is all that is required by the public to demand action in the form of full transparency and an investigation.

This demands that every public official voluntarily go on record and a written statement under oath declaring any involvement or not, by themselves on any members of their families.

This would cost nothing and would do no harm rather increase the standing in the eyes of the public for those willing to participate. Leaving it to the public to form their own views of those who refused to participate.

Finding good investment ventures requires significant time and effort, and even then still too risky to fulfill a 2 for 1 guarantee. Altus Ventures wasn't concerned with the potential success of any venture, their angle was harvesting tax credits. They needed a front business.

Oklahoma officialdom knows little if anything about business ventures and due diligence, but they have plenty of experience, second to none, and always rely on their "dead horses"

So off the folks at Altus Ventures went following their "deserted trail" and quickly found their "dead horse carcass" analogy. -

The "deserted trail" was an obsolete airplane manufacturing facility located in Altus, abandon because of a long dried up market. Liability insurance and lawsuits made the small plane business obsolete long before the turn of the century. The "dead horse carcass" a 50 year old airplane concept originally designed to carry milk cans (as many as 6 ) and a history of troubles since its original design in the 1940's. Read more about Oklahoma's $75+ million milk can scam plane. Which after 50 years of many trying, none were able to get this bad concept safely off the ground, with as much as one empty milk can.

Quartz Mountain Aerospace was the group looking for $32 million to resurrect this "dead horse carcass" they called the Luscombe 11 airplane. The old milk can scam plane that had been a ruse tool of choice for the 50 years. A 1940's flop of the old Luscombe line of airplane designs. An airplane design with a record of trouble achieving FAA certification and financial failures. This Luscombe had so little appeal when originally designed, that is when out of desperation the designer tried promoting the plane for a business/family farm use capable of hauling six milk cans.

The Quartz Mountain Aerospace modern pitch for today was to market the Luscombe 11 to private aviation training schools. A relatively small market with aviation enthusiasts all over the country joining a long line of dreamers trying to raise money to pay for their hobby to build their favorite small plane. That is hoards of aviation enthusiasts for every small plane that ever flew. All after the same virtually non existent market. With all the planes to choose from, and insurance prohibitively expensive, why would training schools choose anything other than the more popular planes with a proven design and clean safety record? The only successful businesses associated with the old Luscombe lines are those staging air show and selling memorabilia to aircraft enthusiasts who gather to talk about the good old days. A fun hobby, but poor business venture.

To fulfill the plan Altus Ventures would need to manage $66.3 million in tax credits. $64 million for the promised investor $2 for $1 return. Actually $3 for $1 since they keep the investment, and the $2 is all incentive. Plus another $2.3 million to cover expenses. We will show how the $2 would come from over $75 million +

The fraud involves an accounting shell game to grossly inflate and misrepresent, on paper, the amount of money the investor risk in a venture. In this case the business plan for the $32 million venture was "cooked" to look like $221 million. On the surface $221 million may seem like an odd amount.

Altus Ventures' scam, Altus V, was to borrow $189 million, via a artificial loan, that would inflate the amount supposedly invested. -

A artificial loan left in the bank needed no collateral to protect the bank, no money was at risk by anyone. Just a plain ol' simple sham, by deception. A criminal act.

Altus Ventures would claim the money was to be held in reserve for future airplane leasing opportunities. Easily pulled off since Mr. Doughty the president of Altus Ventures was also the president of First State Bank Altus. Mr. Doughty only needed to create a loan on paper providing a copy for the state files. Once the tax credit paper work was processed there was nothing to prevent canceling the loan.

The Altus Ventures scam worked with promotional help from Capital West Securities and the Oklahoma Tax Commission ruling to helped Capital West Securities ease concerns by some investors of future tax shelter sham audits.

Then there are the crimes, the crimes. So many crimes by so many, many criminals. -

The important points that will be addressed in greater detail are:

State lawmakers who had a hand in both creating the legislation and voting to approve. The fact they didn't read the bill, is not an excuse, but a crime in itself.

The Oklahoma Tax Commission, Administrator and Commissioners.

Governor Brad Henry, Attorney General Drew Edmondson and the State Auditor and Inspector Jeff McMahan turning their backs, refusing to act and accepting and defending the claims by fraud perpetrators. Claims they guilty of no wrong by using a legal loophole. Criminal acts they can only get by with because the have the authority of the law. Positions the Governor and Attorney General who claim to be attorneys will have a hard time defending in federal court.

For any who believe that attorney's are smart enough to avoid criminal activity or not get caught, it is time to get on board the real world.

As recent as February 2007, Jenkens and Gilchrist, one of the largest and most respected law firms in the US, was forced to dissolve and close its doors. A staff of over 500 lawyers, couldn't protect themselves from criminal behavior.

Why? Tax shams!

It seems like the FBI has already hot on the trail of Jeff McMahan, the State Auditor and Inspector. A trail the FBI has shown no signs of seeing the light at the end of the tunnel. While there are many good reason the to believe this trail could eventually wind its way through the state capital setting up camps at every office that Gene Stipe needed to return favors in the form of campaign donations. That would include the Governor and Attorney General.

Turning their backs involve several crimes including violation of the state constitution to protect the "public interest."

State officials feel protected within the Oklahoma legal system, but allowing fraud by claiming there is a loophole in the law isn't much of a defense in federal court.

Case in point: the recent case of former State Representative Mike Mass who has been sentence to federal prison for the crime of (2) "conspiracy to deprive the public of honest services."

That pretty much covers our Oklahoma Crony Donor Frauds, like tax credit abuse, regardless of how our Governor and Attorney General are so quick to embrace fraud by defending Mr. Paul Doughty and his hired gun tax attorney's claim to interpret the "Capital Formation Incentive Act." Here you can read all about how much credibility the IRS gives hired gun tax attorneys!

This fraud is sitting there begging for federal officials to clean house in Oklahoma, from the Governor Mansion, through the Attorney General's office, the Oklahoma Tax Commission and wiping out good chunk of the entire state senate and representatives.

For those who may not be familiar with all that constitutes a crime in these areas take a look at these.

Theodore Craft, a tax Attorney, formerly with the IRS Office of Chief Counsel comments on Sham Transactions.
The IRS is inquiring about tax credit shams

This is the chronological point to tie in another aspect of this scam. -

There are several serious issues mention here that require detailed discussions and will addressed in length elsewhere.

Once the news media got wind and started exposing this fraud state officials including the Governor first claimed they could do nothing because nothing illegal was done. "An obvious attempt to duck their responsibility to protect the public interest."

As public pressure increased a few Lawmakers and the Governor realized the public was not going to buy a simple cop out. These officials then went about with great fanfare proclaiming how wrong this tax abuse was and that they would get the law changed to prevent further abuse. "Ignoring their responsibility to investigate and recover the $millions lost to this fraud."

Lawmakers supposedly changed the law and the Governor signed.

As it turns out the changes to the law "stopped Nothing!"

The other issue to bring out here is Rep Kevin Calvey, chairman of the Oklahoma House Revenue and Taxation Committee was the one responsible for writing to amendments to the "Capital Formation Incentive Act", to supposedly prevent further abuse.

Rep Calvey's was running for US Congress, and in this same time frame Mr. Paul Doughty, the president of Altus Ventures, and other Altus Ventures' associates, their friends and families members donated $21,900 to Rep Kevin Calvey's congressional campaign. At this same time Mr. Doughty informed Rep Calvey that he felt there were some "good programs" that shouldn't be hurt by any changes. Rep Calvey consulted with Mr. Doughty on what changes could be made that would not affect what Mr. Doughty, the one behind the $66 million scam considered "good programs." See more details on the dubious connection.

This "change the law exercise" was Nothing more than a political charade to "soothe the restless natives" while the corrupt element arranged an another way around what had been exposed.

Mr. Doughty's involvement was to show Rep Calvey how to restructure the act for the next scheme.

Shortly after the law was changed, passed, signed by the Governor, and went into effect, at least $330 million more of what Mr. Doughty considered programs were allowed to be applied and accepted under the old law that had been outlawed.

Governor Brad Henry and Attorney General Drew Edmondson are still turning their backs.

Corruption in Oklahoma never changes. When exposed the corrupt element simply sends the car in for another paint job, and they are right back on the road.

The fix is simple. A fix is long over due! Let's Get'r DONE!

Reference Articles
Reference	Click to view	Article
A103	view	Loophole in tax law threatens budget, March 26, 2006 The Oklahoman, By Randy Ellis, Contributing Nolan Clay

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